Lifeline for CMBS: TALF Program Extended

The Federal Reserve Board and the Treasury Department announced early today that they approved an extension to the Term Asset-Backed Securities Loan Facility (TALF), drawing cheers from commercial real estate advocates. Neither the Federal Reserve nor the Treasury Department anticipate any further additions to the types of collateral eligible for the facility.

Conditions in financial markets have improved considerably in recent months, according to the joint press release. Nonetheless, the markets for asset-backed securities (ABS) backed by consumer and business loans and for commercial mortgage-backed securities (CMBS) are still impaired and seem likely to remain so for some time.

To promote the flow of credit to businesses and households and to facilitate the financing of commercial properties, the Federal Reserve and Treasury approved extending TALF loans against newly issued ABS and legacy CMBS through March 31, 2010.

Because new CMBS deals can take a significant amount of time to arrange, the Federal Reserve and Treasury approved TALF lending against newly issued CMBS through June 30, 2010.

“We are very encouraged by the Federal Reserve’s decision to extend this extremely important program,” said Steven Wechsler, president and CEO of the National Association of Real Estate Investment Trusts (NAREIT), in a prepared statement. “The TALF program can be a strong lever to reopen the CMBS market, a critical source of funding for commercial real estate that has been shuttered for the past 18 months.”

“However, in the CMBS market, TALF simply needs more time to work. We are grateful for the Federal Reserve’s vision and leadership in deciding to provide that additional measure of time,” added Wechsler.

Continuing dysfunction in the commercial real estate credit market threatens millions of jobs that the industry supports and the hundreds of millions of dollars in tax revenues it produces, emphasizes Wechsler. “The TALF program is an important first step in curing this market dysfunction.”

The Federal Reserve will continue to monitor financial conditions and will consider in the future whether “unusual and exigent circumstances” warrant a further extension of the TALF to help promote financial stability and economic growth. The Federal Reserve and Treasury had previously authorized TALF loans through Dec. 31, 2009.

After having conducted a thorough analysis of a number of potential candidates, the Federal Reserve and Treasury also announced that they are holding in abeyance any further expansion in the types of collateral eligible for the TALF.

The securities already eligible for collateralizing TALF loans include the major types of newly issued, triple-A-rated ABS backed by loans to consumers and businesses, and newly issued and legacy triple-A-rated CMBS.

The Federal Reserve and Treasury added that they are prepared to reconsider their decision, if financial or economic developments indicate that providing TALF financing for investors' acquisitions of additional types of securities is warranted.